The
Federal Power to TaxThe Issues:
How far does the power of Congress "to lay and collect
taxes" extend?

Introduction

The United
States is a government of enumerated powers.
Congress, and the other two branches of the federal
government, can only exercise those powers given in
the Constitution.

The
powers of Congress are enumerated in several
places in the Constitution. The most
important listing of congressional powers appears
in Article I, Section 8 (see left) which
identifies in seventeen paragraphs many important
powers of Congress. In this section,
we consider how the enumerated power of Congress
"to lay and collect taxes" has been interpreted.

Article I,
Section 8 gives Congress the power to "lay and
collect taxes, duties, imports, and
excises." The Constitution allows Congress
to tax in order to "provide for the common defense
and general welfare."The Court has
flip-flopped on the issue of whether Congress has
the constitutional power to tax in order to
accomplish regulatory goals that would otherwise
be outside of the scope of its enumerated
powers. In Bailey vs Drexel Furniture
(1922), the Court invalidated a 10% tax on
the annual profits of employers who knowingly
employ child labor. The tax, imposed after
an earlier attempt to block the interstate
transportation and sale of products produced by
child labor was struck down in Hammer, was
seen by the Court as an unconstitutional attempt
to make an end-run around its earlier
decision. In 1925, in Linder v United
States, the Court reversed the conviction
of a doctor who had given three cocaine tablets to
a patient to relieve an addiction. The
conviction, based on a law that imposed a $3 tax
on doctors who prescribed cocaine, rested on the
theory that the law limited the prescription of
cocaine to the treatment of diseases, not
addictions, and that the defendant had given
cocaine tablets to an addict. The Court
concluded that the law could survive only as a
revenue measure, and that the Taxing Power gave
Congress no authority to regulate directly the
practice of medicine--that is, to tell doctors who
had paid the required tax what they can or cannot
do for their patients.

The Court reversed its ban on taxes serving
primarily regulatory (rather than
revenue-producing) goals in Steward Machine
(1937), which upheld a tax on employers
designed to encourage states to enact unemployment
compensation schemes. In Kahriger (1953),
the Court upheld a law requiring bookies to
register and pay on tax on all wagers--even though
the tax had the regulatory goal of wiping out
bookmaking operations and could not be expected to
produce significant revenue.

The Affordable Health Care Act ("Obamacare")
survived, mostly, when five justices found "the
individual mandate" to be within the taxing power of
Congress.

In perhaps the most significant taxing power case
ever decided, the Court ruled in National Federation
of Independent Business v Sebelius (2012)
that the so-called "individual mandate" (generally
considered a requirement that individuals purchase
health insurance) contained in the Affordable Care
Act could be sustained as a tax, even though the
requirement was outside of Congress's power to
regulate commerce. Writing for five members
of the Court, Chief Justice Roberts held that even
though proponents of the Act consistently said a
penalty, not a tax, would apply to individuals who
failed to purchase insurance, it still operated as
a tax and that a functional analysis should
control. The Court noted that failure to
purchase insurance required a payment to the IRS,
that no criminal penalties attached to failure to
purchase insurance, and that the cost of the tax
would, in most cases, be less than the cost of
buying insurance. In sum, the law did not
make it unlawful to purchase insurance, allowing
individuals a choice of paying a tax
instead. Roberts also reaffirmed that the
Congress may seek to achieve regulatory goals
through its taxing power that it might not be able
to achieve under its other Article I powers.
Justices Kennedy, Alito, Scalia, and Thomas
dissented, arguing that the taxing power could not
sustain the mandate.

TAXING POWERThe
Congress shall have Power To lay and
collect Taxes, Duties, Imposts and Excises,
to pay the Debts and provide for the common
Defence and general Welfare of the United
States...

Article I, Section. 8.

The Congress shall have Power To lay and
collect Taxes, Duties, Imposts and Excises, to
pay the Debts and provide for the common
Defence and general Welfare of the United
States; but all Duties, Imposts and Excises
shall be uniform throughout the United
States;

To borrow Money on the credit of the
United States;

To regulate Commerce with
foreign Nations, and among the several
States, and with the Indian Tribes;

To establish an uniform Rule of
Naturalization, and uniform Laws on the
subject of Bankruptcies throughout the
United States;

To coin Money, regulate the
Value thereof, and of foreign Coin, and fix
the Standard of Weights and Measures;

To provide for the Punishment of
counterfeiting the Securities and current
Coin of the United States;

To establish Post Offices and
post Roads;

To promote the Progress of
Science and useful Arts, by securing for
limited Times to Authors and Inventors the
exclusive Right to their respective Writings
and Discoveries;

To constitute Tribunals inferior
to the supreme Court;

To define and punish Piracies
and Felonies committed on the high Seas, and
Offences against the Law of Nations;

To declare War, grant Letters of
Marque and Reprisal, and make Rules
concerning Captures on Land and Water;

To raise and support Armies, but
no Appropriation of Money to that Use shall
be for a longer Term than two Years;

To provide and maintain a
Navy;

To make Rules for the Government
and Regulation of the land and naval
Forces;

To provide for calling forth the
Militia to execute the Laws of the Union,
suppress Insurrections and repel
Invasions;

To provide for organizing,
arming, and disciplining, the Militia, and
for governing such Part of them as may be
employed in the Service of the United
States, reserving to the States
respectively, the Appointment of the
Officers, and the Authority of training the
Militia according to the discipline
prescribed by Congress;

To exercise exclusive
Legislation in all Cases whatsoever, over
such District (not exceeding ten Miles
square) as may, by Cession of particular
States, and the Acceptance of Congress,
become the Seat of the Government of the
United States, and to exercise like
Authority over all Places purchased by the
Consent of the Legislature of the State in
which the Same shall be, for the
Erection of Forts, Magazines, Arsenals,
dock-Yards, and other needful
Buildings;--And

To make all Laws which shall be
necessary and proper for carrying into
Execution the foregoing Powers, and all
other Powers vested by this Constitution in
the Government of the United States, or in
any Department or Officer thereof.

Questions

TAXING POWER-- QUESTIONS

1. Does Congress have the power to tax for a purely
regulatory, non-revenue raising, goal? Could
Congress require all prostitutes to register and pay a tax
if it could not make prostitution a federal crime
directly?
2. Does the Court's decision in National Federation
of Independent Business v Sebelius suggest that Congress
will increasingly rely on its taxing power to accomplish
goals it may not be able to accomplish under its commerce
power?
3. Do you think that the description of a mechanism
in an act as a "penalty" not a "tax" should control, or
was the Court correct to use a functional analysis to
conclude that the individual mandate penalty/tax operated
as a tax--no criminal punishment, for example, for not
purchasing health insurance so long as you make the
payment to the IRS (and the amount paid will generally be
less than the cost of insurance)?